IOU Student Aid

California's unusual approach to its budget crisis includes giving temporary pledges, not grants, to those who would normally be eligible for assistance.
July 6, 2009

California's budget mess -- already leading public colleges and universities to consider furloughs, enrollment limits and huge budget cuts -- is now hitting low income students in an unusual way.

This month would normally be when those eligible for Cal Grants would receive official eligibility notification of their award sizes and money would start moving to the institutions the students will attend (in many cases only because the Cal Grant is part of the aid package). Cal Grants are need-based, and are a key tool for state residents enrolling at public and private institutions, with the maximum annual grant topping $9,000. But under the IOU system imposed by the state last week due to the failure to adopt a budget, Cal Grant recipients are being told what they probably will receive eventually, with their institutions currently being forced to consider the possibility that they will receive warrants that will eventually be worth cash, but that may not be now.

California's controller estimates that $159 million in Cal Grant payments normally made in July will be made with warrants instead. A resolution of the state's budget crisis -- which is theoretically possible at any time, but uncertain -- could eliminate the use of warrants.

Jonathan Brown, president of the Association of Independent California Colleges and Universities, said that many details about what will happen if the warrants stay in place are uncertain. And he said that college leaders hope that a budget agreement makes the issue moot.

But if there isn't a solution soon, he said, there could be serious problems for students and institutions. Brown said that many Cal Grant recipients are first generation students whose families have needed reassurance that they can afford to enroll. For the state to send an ambiguous letter to all of these families, many of which are already nervous about being able to pay for college, could have a terrible impact on some families. "I'm worried about parents saying that they aren't comfortable after the state tells them that it may pay them later," said Brown.

The colleges involved will also be affected, Brown said, if there is any real delay in payments. Typically, the funds would have been sent by the time students enroll, but some have suggested that the warrants might not be paid in cash until well after that. Some banks are saying that they will accept the warrants, but not everyone is. Some are applying a discount rate to the IOU's. And for colleges with tight cash flow, a delay in receiving the funds could be extremely difficult to handle, especially as it relates to lines of credit that some use.

The impact of delays may be most notable at private institutions as the students using the grants there tend to have larger awards than those enrolled at the public institutions, which are less expensive. About 20 percent of the Cal Grant awards go to private colleges, but they account for 37 percent of the dollars.

Brown said that colleges are still trying to figure out what they will do if the warrants aren't replaced with cash by the time students enroll.

D. Merrill Ewert, president of Fresno Pacific University, said that 40 percent of the university's students receive Cal Grants and that the institution is starting to consider its options if they don't receive the money on time. "We're quite concerned and we don't know what it means at this point," he said. "A lack of cash would affect everybody."


Back to Top